A Democraticredistricting plan after the 1980 Census carved up the 4th District, with only about 15% of its territory being retained and added to various territory from other districts; Derwinski and fellow Republican congressman George M. O'Brien were placed in the same district, and O'Brien won the 1982 primary on the strength of having more of his previous district included in the new configuration. After Derwinski's loss, President Ronald Reagan appointed him Counselor to the State Department. In 1987, Reagan appointed him Under Secretary of State for Security Assistance, Science and Technology, where he served until the end of Reagan's term, shortly after which he was appointed Administrator of Veterans Affairs, in charge of the Veterans Administration, which was elevated to cabinet-level status as the Department of Veterans Affairs in 1989, making Derwinski the first Secretary of Veterans Affairs.[1]

A Polish American, Derwinski was noted for his efforts on behalf of Eastern Europe throughout his career. Notably, he aided in the rehabilitation of the Serbian Royalist general Draža Mihailović. Mihailović had received the Legion of Merit for his resistance efforts against the Axis—but this information was marked "secret" at the behest of the State Department so as not to harm relations with Marshal Tito, the current ruler of Yugoslavia in 1967. Tito was Mihailović's rival in World War II, and after Tito's forces emerged triumphant, Mihailović was accused of collaboration with the Nazis and executed. At the urging of airmen involved in Operation Halyard who had been saved by Mihailović's forces and had heard rumors of the award to him, Derwinski insisted that the State Department make the text of President Truman's citation public, confirming that Mihailović had not collaborated.[2] Derwinski served as head of "Ethnic Americans for Dole/Kemp" during the 1996 presidential election.

On learning of his death, former United States Senator Peter Fitzgerald (R-IL) described Derwinski as "a giant in Illinois politics ... [H]e had incredible connections in all the different ethnic neighborhoods in Chicago, he was really loved by everybody on both sides".